-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bs12oy02vbTwdK33yEAZL4et7ldisJ5eTTB49CXk2sVUye7R1hFwSiNyGp35dVqD tpGg69HTEJo0832Au/2kyg== 0000949459-97-000425.txt : 19970825 0000949459-97-000425.hdr.sgml : 19970825 ACCESSION NUMBER: 0000949459-97-000425 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970822 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DCC COMPACT CLASSICS INC CENTRAL INDEX KEY: 0000809932 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 841046186 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21114 FILM NUMBER: 97668629 BUSINESS ADDRESS: STREET 1: 9301 JORDON AVE STREET 2: STE 105 CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8189938822 MAIL ADDRESS: STREET 1: 200 E LAS OLAS BLVD STREET 2: C/O ATLAS PEARLMAN TROP & BORKSON CITY: FT LAUDERDALE STATE: FL ZIP: 33301 FORMER COMPANY: FORMER CONFORMED NAME: DUNHILL COMPACT CLASSICS INC DATE OF NAME CHANGE: 19900522 FORMER COMPANY: FORMER CONFORMED NAME: TOTAL CAPITAL CORP DATE OF NAME CHANGE: 19871103 10QSB 1 DCC COMPACT CLASSICS, INC FORM 10-QSB 6/30/97 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1997 COMMISSION FILE NUMBER 0-21114 DCC COMPACT CLASSICS, INC. - -------------------------------------------------------------------------------- (exact name of registrant as specified in its charter) COLORADO 84-1046186 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation of organization) Number) 9301 Jordan Avenue, Suite 105, Chatsworth, California 91311 - -------------------------------------------------------------------------------- (Address or principal executive offices) (818) 993-8822 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of business of August 9, 1997. Common Stock - $.005 par value 7,767,725 - ------------------------------ ------------------------------ CLASS Outstanding at August 9, 1997 1 PART I FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED BALANCE SHEET June 30, 1997 and December 31, 1996 (Unaudited) June 30, Dec. 31, 1997 1996 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 59,016 $ 155,222 Accounts receivable, net of bad debt and return allowances of $318,061 and $233,061, respectively 1,544,631 915,215 Notes receivable 141,056 125,000 Inventories 1,116,334 1,063,563 Advanced royalties 275,164 218,663 Income tax receivable 80,000 80,000 ---------- ---------- Total current assets 3,216,201 2,557,663 ---------- ---------- FIXED ASSETS, net 650,487 589,357 ---------- ---------- OTHER ASSETS Deferred taxes 46,864 46,864 Mastering costs, net 665,042 650,761 Receivables from affiliate 59,014 62,031 Intangibles 300,950 270,151 Other 65,474 52,762 ---------- ---------- Total assets $5,004,032 $4,229,589 ========== ========== The accompanying notes are an integral part of these financial statements. 2 DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED BALANCE SHEET June 30, 1997 and December 31, 1996 (Unaudited) June 30, Dec. 31, 1997 1996 ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Line of credit $ 349,798 $ 710,025 Accounts payable 807,286 472,087 Royalties payable 1,838,703 1,731,134 Other accrued expenses 2,634 3,358 Deferred revenue -- 78,485 Current portion of long-term debt 116,000 75,000 ----------- ----------- Total current liabilities 3,114,421 3,070,089 ----------- ----------- LONG-TERM DEBT 212,116 75,000 STOCKHOLDERS' EQUITY Common stock, par value $.005 per share; authorized 10,000,000 shares, issued and outstanding 7,767,725 shares and 6,746,725 shares, respectively 38,839 33,734 Additional paid-in capital 1,822,917 1,094,322 Accumulated deficit (184,261) (43,556) ----------- ----------- Total stockholders' equity 1,677,495 1,084,500 ----------- ----------- Total liabilities and stockholders' equity $ 5,004,032 $ 4,229,589 =========== =========== The accompanying notes are an integral part of these financial statements. 3 DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Sales $ 1,419,794 $ 1,222,367 $ 2,377,010 $ 2,397,868 Cost of sales 958,746 681,837 1,448,728 1,113,056 ----------- ----------- ----------- ----------- Gross profit 461,048 540,530 928,282 1,284,812 Selling, adminis- trative and other operating expense 462,505 550,104 1,070,278 1,103,920 ----------- ----------- ----------- ----------- Operating income (loss) (1,457) (9,574) (141,996) 180,892 Other: Interest expense, net (29,705) (3,625) (53,710) (6,829) Other income -- -- 70,000 -- ----------- ----------- ----------- ----------- Income (loss) before income taxes (31,162) (13,199) (125,706) 174,063 Provision for income taxes 2,000 (5,163) 15,000 70,000 ----------- ----------- ----------- ----------- Net income (loss) $ (33,162) $ (8,036) $ (140,706) 104,063 =========== =========== =========== =========== Earnings (loss) per share $ (.01) $ (.00) $ (.02) $ .02 =========== =========== =========== =========== Average weighted number of shares outstanding 7,292,384 5,343,801 7,059,088 5,334,059 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 4 DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 1997 1996 --------- --------- Cash flows from operating activities: Net income (loss) $(140,706) $ 104,063 --------- --------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Non-cash items included in net loss: Depreciation and amortization 70,059 15,263 Deferred revenue (78,485) 750,000 Changes in: Receivables (629,417) 222,002 Employee receivable (16,056) -- Inventories (52,771) (238,289) Mastering costs (14,281) (32,857) Royalty advances (56,501) (168,496) Other (54,711) 38,000 Accounts payable and accrued expenses 334,475 194,528 Royalties payable 107,569 (416,080) Income taxes -- 45,964 --------- --------- Total adjustments (390,119) 410,035 Net cash (used in)/provided by operating activities (530,825) 514,098 --------- --------- Cash flows from investing activities: Capital expenditures $(116,970) $(312,007) --------- --------- Net cash used in investing activities $(116,970) $(312,007) --------- --------- The accompanying notes are an integral part of these financial statements. 5 DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 1997 1996 --------- --------- Cash flows from financing activities: Payments on line of credit $(785,111) (50,383) Payments of long term debt (25,000) -- Additional borrowing 628,000 225,000 Common stock issued 733,700 -- --------- --------- Net cash provided by (used in) financing activities 551,589 174,617 --------- --------- Net increase/(decrease) in cash and cash equivalents (96,206) 376,708 Cash and cash equivalents at beginning of period 155,222 531,826 --------- --------- Cash and cash equivalents at end of period $ 59,016 $ 908,534 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid $ 15,000 $ -- ========= ========= Interest paid $ 51,677 $ 13,954 ========= ========= Non-Cash Transactions Issuance of stock for fixed assets -- $ 408,861 ========= ========= Stock issued in exchange for services -- $ 50,000 ========= ========= The accompanying notes are an integral part of these financial statements. 6 DCC COMPACT CLASSICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 1. SIGNIFICANT ACCOUNTING POLICIES In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company's financial position and the results of its operations and cash flows for the periods shown. Certain prior period amounts have been reclassified to conform to the current period's presentation. The results of operations for both the three and six month periods are not necessarily indicative of the results to be expected for a full year of operations. Use of estimates - The Company's management uses estimates and assumptions in preparing the financial statements. Actual results could vary from these estimates. Key estimates include the collectibility of the accounts receivable, the returns of merchandise shipped, inventory valuations and marketability. In addition, the Company records its liability for license and royalty fees based upon contractual obligations. These calculations are subject to review by independent agencies. Should the results of a review produce amounts greater than those recorded by the Company, there may be a negative impact on the Company's financial statements. 2. INVENTORY Inventory is stated at the lower of cost (on a first-in first-out basis) or market and consists of the following: June 30, Dec. 31, 1997 1996 ---------- ---------- Raw materials $ 370,915 $ 206,353 Finished goods and components 745,419 857,210 --------- ---------- Total $1,116,334 $1,063,563 ========== ========== 7 DCC COMPACT CLASSICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 3. CAPITAL STOCK The Company issued 190,000 shares of stock at $1 per share and 396,000 shares of stock at $0.50 per share during the quarter ended June 30, 1997, and 435,000 shares at $1 per share during the quarter ended March 31, 1997. Related commission costs of $89,300 were paid. 4. MAJOR CUSTOMER The Company has an agreement with Passport Music to be the exclusive distributor for the Company. Passport represents approximately 70% of sales. The previous distributor, Navarre, represented approximately 60% of sales. 5. LONG-TERM DEBT The Company issued notes for $225,000 in exchange for certain assets. The notes bear interest at 8%. Principal plus the accrued interest is due semi annually. The Company also has a term note bearing interest at a bank reference rate plus 2.9%. The maturity of the debt is as follows: Due in year ended: June 30, 1998 $116,000 June 30, 1999 90,000 June 30, 2000 65,000 June 30, 2001 40,000 June 30, 2002 17,116 -------- 328,116 Less current portion 116,000 -------- Long term debt $212,116 ======== 6. OTHER INCOME During the six months ended June 30, 1997, a subsidiary of the Company received a legal settlement of $70,000 relating to a discontinued distribution agreement. 8 Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Overview - -------- DCC Compact Classics, Inc. is a specialty entertainment company that seeks to identify and exploit niches within the entertainment industry. This strategy has been demonstrated by the Company in the manner in which it identified a niche with the high-end audio market. It has since fulfilled this niche through the compilation and distribution of the Company's 24K Gold CD's. While the audio market niche has provided DCC with a solid core business, growth aspects within this segment of the market are minimal as demonstrated by the relatively flat revenues for the company form 1995 through 1996. This being the case the Company has identified several new niches within the entertainment industry and is currently in the process of developing the necessary marketing and production facilities to properly exploit their potential. In July of 1996, DCC acquired Photo Dimensions, Inc. a privately held company in Salem, North Carolina. Of particular importance is the patented technology owned by Photo Dimensions, Inc. (herein referred to as "PDI") which allows for the pre-exposure of film in a Single-Use Camera thereby creating a phrase, logo, or image on the bottom of each and every picture developed by the camera. While the technology of PDI has been patented, the ability to apply this technology into the mass production of film and single-use caption cameras has required certain modifications, resulting in delays form the original time line issued by management. At this time, PDI is accepting orders, marketing the camera(s) and putting in place the necessary production facilities to enable the Company to process the volume of orders anticipated. The Company's operating performance is influence by several factors, the most significant of which is operating efficiency. Traditionally the Company has been able to maintain cost of goods sold at approximately 45%. As a result of the continued ramp up of production related to PDI, cost of goods sold as a percentage of revenues have increased from the traditional range of 45% to 60% for the six months ending June 30, 1997. It is currently estimated that the 2nd half of 1997 should show marked improvements as a result, in part, of certain efficiencies now being experienced in the PDI subsidiary. 9 DCC COMPACT CLASSICS, INC. Results of Operations - --------------------- The following sets forth for the periods indicated the percentage of total revenues represented by each subsidiary of the Company's statements of operations: Three months ended Six months ended March 31 June 30 1997 % 1997 % DCC Compact Classics $ 808,851 85% $2,146,747 90% Romance Alive Audio 22,279 2% 21,874 1% PDI 126,086 13% 208,389 9% --------- ---- ---------- ---- Total revenues $ 957,216 100% $2,377,010 100% DCC Compact Classics $ (75,491) 69% $ (16,480) 12% Romance Alive Audio 34,250 (32%) 10,057 (7%) PDI (68,866) 63% (134,282) 95% --------- ---- ---------- ---- Total net income $(110,108) 100% $ (140,282) 100% Six months ended June 30, 1997 and June 30, 1996 - ------------------------------------------------ Sales for the six months ended June 30, 1997 were $2,377,010 compared to $2,397,868, a slight decline of $20,858. This in part can be attributed to the current focus of management on the establishment and enhancement of the PDI subsidiary, thereby resulting in less focus on the core music business, particularly in the first quarter ended March 31, 1997. By comparison music sales in the second quarter ended June 30, were $1,337,896 compared to sales of $808,851 for the first quarter ended March 31, 1997. While management continues to dedicate a large part of their time to the enhancement of the PDI subsidiary, the second quarter figures reflect a renewed commitment to the basic core business of the Company. Cost of goods sold for the six months ended June 30 ,1997 were $1,448,728 compared to $1,113,056 for the same period in 1996, or an increase of $335,672, or 31%. As a percentage of sales, cost of goods sold for the six months ended June 30, 1997 were 60% compared to 46% for the six months ended June 30, 1996. In particular, this increase can be attributed to extraordinary expenses related to PDI as a result of the current production of marketing units, as well as higher costs associated with the initial production of camera units. Selling, administrative and other operating expenses were down $33,642, to $1,070,278 for the six months ended June 30, 1997 compared to $1,103,920 for the six months ended June 30, 1996. These savings are, in part, a result of operating efficiencies being recognized, as well as certain one time expenses reported during the same period in 1996. 10 DCC COMPACT CLASSICS, INC. Net results of operations was a loss of $140,706 or $0.02 per share for the six months ended June 30, 1997 compared to a income of $104,063 or $0.02 per share for the same period in 1996. Management attributes this loss to the continued expenses of establishing the PDI brand name and production facilities. It is currently anticipated by management that operating results should improve through the remainder of 1997. Three months ended June 30, 1997 and June 30, 1996 - -------------------------------------------------- In the second quarter of 1997, the Company reported a loss of $33,162 compared to a loss of $8,036 for the same period in 1996. Revenues increased $197,427 to $1,419,794 for the second quarter ending June 30, 1997 compared to $1,222,367 for the same period in 1996. This increase in sales reflects the initial sales of PDI single use caption camera products. General and administrative costs dropped 15% to $462,505 for the three months ended June 30, 1997 compared to $550,104 for the same period in 1996. Liquidity and capital resources - ------------------------------- As of June 30, 1997, the Company had positive working capital of $101,780, compared to a working capital deficit for the same period in 1996. Management currently believes that the Company has sufficient working capital and cash on hand to maintain its current business. During the six months ended June 30, 1997 DCC has raised through the private placement of shares $733,700 at prices of $0.50 per share to be utilized for the purchase of equipment for PDI, as well as general corporate purposes. Additional expenditures related to PDI have been funded from the Company's current credit facilities, as well as internally generated cash flow. It is anticipated that to continue to grow the PDI business, additional capital will be required. At its current stage, the Company continues to utilize internally generated cash flow to fund this growth, which may cause delays in marketing and the production of cameras. The Company continues to evaluate alternative financing options in order to continue the growth of the PDI subsidiary at a rate which will enable the Company to exploit the currently defined niche. 11 DCC COMPACT CLASSICS INC. PART II OTHER INFORMATION Item 1. Legal Proceedings - ------------------------- There have been no material developments in the legal proceedings which the Company is involved as reported in the Company's Form 10-KSB for the period ended December 31, 1996. Item 2. Shareholders Stock Information - --------------------------------------- Through August 14, 1997, DCC Compact Classics, Inc.'s stock is traded on NASDAQ bulletin board of "Pink Sheets". Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- None Item 5. Other Information - -------------------------- None. Item 6. Exhibits and Reports - ------------------------------ (a) The Company filed Form 8-K/A dated February 17, 1997. (b) There were no reports on Form 8-K filed during this period. 12 DCC COMPACT CLASSICS, INC. Signatures - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DCC COMPACT CLASSICS, INC. (Registrant) BY: /s/ Marshall Blonstein ----------------------------------------- Marshall Blonstein Chairman of the Board, Chief Executive Officer, President Date: August 22, 1997 -------------------------- 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF DDC COMPACT CLASSICS, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 592 0 1,862 318 1,116 3,216 823 173 5,004 3,114 0 0 0 39 1,549 5,004 2,377 2,377 1,449 1,449 1,070 0 54 (126) 15 (141) 0 0 0 (141) (.02) (.02)
-----END PRIVACY-ENHANCED MESSAGE-----